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Thursday
Jun302016

Franchise 101: 68 Steps to Reduce Risk of Joint Employer Liability

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
gwintner@lewitthackman.com

 

June 2016

 

Franchise Lawyers

David Gurnick in The Franchise Law Journal

Regarding trademark disputes: "...it may seem to lawyers and courts that there is not a readily accessible legal lexicon to describe the sounds and appearances of words and phrases. However, this is a misconception."

Click to read: Technical Terms for Comparative Trademark Analysis 

FRANCHISOR 101:
Reducing the Risks of Joint Employer Liability

 

With the risk of franchisors being jointly liable for obligations to franchisee employees, and franchisees exposed to unionization of employees if their franchisor is a joint employer, we present this list of 68 steps every franchisor and franchisee can, and should consider to reduce the risk of joint co-employer liability.

These steps also build relations with customers, communities, employees and suppliers and can help improve and expand successful franchised businesses and systems. 

  1. Franchisor's entity name can be different than franchise brand.

  2. Franchisee's entity name can be different than franchise brand.

  3. Business card on counter can state franchisee's name and "independent franchise owner."

  4. Plaque in customer area can identify franchisee as independent franchise owner (with owner's photo).

  5. Local ownership and identity of independent franchise owner(s) can be promoted in the community.

  6. Franchisor can participate in national and regional associations, making sure to promote pride of independent ownership of franchise outlets.

  7. Franchisee owner can be active in local chambers of commerce and trade associations, making sure to communicate pride of independent ownership.

  8. Store-level customer receipts can state franchisee's entity name and "each location independently owned and operated."

  9. Store can use stationery that identifies independent franchise owner.

  10. Store level brochures can identify independent franchise owner.

  11. Franchise owner(s) can be present at store(s) daily or periodically, up front, with "owner" name tag, greeting customers.

  12. Store can display certificates of training, awards and honors identifying independent franchise owner.

  13. Each franchisee can be a corporation or limited liability company, not an individual.

  14. Local store advertising can state that location is independently owned and operated.

  15. Local advertising can include franchisee's name and photo.

  16. Media events and community public relations can discuss and show photos of all the local independent franchise owners.

  17. Franchisor's website can emphasize independent ownership, e.g., picturing the independent owner and providing a biography, with the link for each location.

  18. Franchisor's social media can explain independent ownership.

  19. Franchisor's social media can feature a rotating biography of each independent owner.

  20. Franchisee can educate its employees in new hire orientation as to nature of franchise relationship.

  21. Franchisee can educate its employees that they work for the franchisee.

  22. Back-of-store interior signs can remind employees they work for the franchisee.

  23. Business bank accounts and checks can bear franchisee's name, not franchisor's name or logo.

  24. Variations can be encouraged in store layout/design letting each franchise location look a little different while adhering to brand requirements.

  25. Franchisor can avoid instructing or directing franchisee's employees, but communicate to franchise owner.

  26. Employment application can state franchisee's name and note that applicant is applying to franchisee for employment.

  27. Franchisee can make its own hiring decisions.

  28. Franchisee can set its own employee compensation policies.

  29. Franchisee can make its own discipline and termination decisions.

  30. Franchisor can instruct field personnel to avoid advising franchisees on any employment matters.

  31. Franchise agreement can state parties' mutual intent that franchisee makes all decisions on firing, firing, compensation and disciplining franchisee's employees.

  32. Franchise agreement can state parties' mutual intent to be independent contractors.

  33. National and regional advertising and website can state "each location is independently owned and operated."

  34. Franchisor can remove from Operating Manual those controls or requirements that are not essential to protection and uniformity of the brand.

  35. Franchisor can provide training programs only for franchisee's supervisorial and managerial employees and require franchisee to train its staff.

  36. Franchisees can be free to purchase supplies from any source as to which standardization is not essential.

  37. Alternative supplier options can be provided to franchisees for supplies that are essential to brand.

  38. Franchisees can remind suppliers their customer is the franchisee, not the franchisor.

  39. Utility accounts can be in franchisee's name.

  40. Premises can be leased by the franchisee.

  41. Franchisee can do its own scheduling of employee working hours.

  42. Franchisee can set its own hours of operation.

  43. Franchisor can remove from franchise agreement all controls or requirements that are not essential to protection and uniformity of brand.

  44. Franchisee can have choices of several alternative uniform styles and dress codes.

  45. Franchisee can have some variation in goods and services offered per local preferences while still adhering to brand requirements.

  46. Franchisee can set own prices while still adhering to brand requirements per applicable law.

  47. Franchisee can consult its own legal counsel on questions about treatment of employees.

  48. Franchisees can have their own employment manuals and not use franchisor's.

  49. Franchisor can obtain EPLI insurance.

  50. Franchisor can require franchisees to obtain EPLI insurance.

  51. Franchise Agreement can require franchisees to indemnify franchisor for wage and hour and other labor and employment claims by its employees.

  52. Encourage franchisees to be active in community, support community events, speak to city council and legislative bodies, always noting independent owner status.

  53. Franchisor can provide franchisees pre-written news columns about the franchise, that franchisees can get published in local community newspapers.

  54. Product packaging can note independent ownership, and identify independent franchise owner(s).

  55. Franchisees can have their workers sign a disclaimer acknowledging which person/entity they work for.

  56. Franchisee's name can be stated when a live person answers franchisee's phone.

  57. Franchisee's recorded phone message can state franchisee's name.

  58. National and regional brand advertising can note each location is (or many locations are) independently owned and operated.

  59. Regional cooperatives in advertising, can state each location is independently owned and operated.

  60. Beyond disclaimers, weave fact of independent, local ownership into message, content and theme of brand advertising.

  61. On website's list of franchise locations, list owner's name with each location.

  62. Franchisees should file fictitious business name statement per state and local law.

  63. Franchisee's independent name should appear on both paycheck and separate stub the employee retains.

  64. Franchisor should not obtain or maintain records or files of franchisee employees.

  65. Franchisor can avoid operating at or from the same location as a franchisee.

  66. Franchisees can pay their liability, workers compensation and other insurance policy premiums on time and not let insurance lapse.

  67. Franchisees can employ one or more assistants or helpers.

  68. At annual franchise convention, remind franchisees of independent ownership.

  69. This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2016. All Rights Reserved.

Wednesday
May252016

States Protect Against Joint Employer Liability; and Combatting Franchisor's Harmful New Policies

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
gwintner@lewitthackman.com

 

May 2016

 

Franchise Lawyers

Barry Kurtz in The Business Journals

 

"...Is the business sustainable in the marketplace? To be sustainable, the business concept should be unique enough to withstand competition, and also...”

Click to read: Guidelines When Considering Buying a Franchise

IFA Legal Symposium

 

Barry Kurtz, David Gurnick and Tal Grinblat attended the International Franchise Association's 49th Annual Legal Symposium in Washington D.C. The conference provides an opportunity to gain insights into many of the legal challenges faced by franchisors around the world. This year's symposium featured Philip Miscimarra of the National Labor Relations Board, who spoke on the NLRB's recent decisions regarding joint employer liability.

 

FRANCHISOR 101:
State Bills re Franchisor Joint Employer Liability

With franchisors deeply concerned about joint liability for franchisee employees, more states are passing laws trying to prevent that from happening. Here are some states and measures that have passed:

Texas enacted Senate Bill 652, providing that: "[A] franchisor is not considered to be an employer of: (1) a franchisee; or (2) a franchisee's employees." 

Michigan passed House Bills 5070 - 5073, stating: "[A]s between a franchisee and franchisor, the franchisee is considered the sole employer of workers for whom the franchisee provides a benefit plan or pays wages." 

Utah passed House Bill 116, stating, "[A] franchisor is not considered to be an employer of: (i) a franchisee; or (ii) a franchisee's employee."  

Wisconsin enacted Act 203 stating: "[A] franchisor ... is not considered to be an employer of a franchisee ... or of an employee of a franchisee."

Indiana approved House Bill 1218, which provides: "a franchisor ... is not considered to be an employer or co-employer of: (1) a franchisee ... or (2) an employee of a franchisee." 

Georgia enacted Senate Bill 277, providing: "[N]either a franchisee nor a franchisee's employee shall be deemed to be an employee of the franchisor for any purpose."

The Virginia legislature attempted to pass House Bill 18, stating that "[N]either a franchisee nor a franchisee's employee shall be deemed to be an employee of the franchisee's franchisor." But, the governor vetoed the bill.

These state laws will not protect franchisors from all claims. For example, various claims based on federal law may not be affected. But passage shows which states are friendlier to franchises and want to retain and grow their franchise industries.

 

FRANCHISEE 101:
What to Do About Franchisor’s Harmful New Policies

Franchisees aren't always excited when their franchisor introduces a new policy. But if a new policy overreaches and might doom a franchisee's business, can it be stopped before it starts?

Automotive Technologies, Inc. ("ATI") is the franchisor of "Wireless Zone" stores. These stores sell Verizon Wireless cell phone products and services. The franchisor, ATI, received sales commissions from Verizon that it passed on to franchisees who made the sales. ATI also paid performance incentive payments ("PIPs") to franchisees when they sold certain phones. When ATI announced it would stop paying the PIPs or start taking a 5% royalty from commissions before passing them on, a group of franchisees sued. They claimed the new policy was a breach of contract, unjust enrichment, and unfair practice, and asked the court for a preliminary injunction to stop the new policy.

The court ruled that to immediately stop ATI from applying its plan, the franchisees had to show they would be irreparably harmed - that is, they would lose "substantially all of their businesses." Based on financial information from the franchisees, the court found they could suffer no more than a 2% loss of revenue from ATI's new policy, and were not at risk of losing their businesses. The court denied the preliminary injunction.

Franchisors and franchisees may disagree on what is best for a franchise system, and the wisdom of a particular course may be known only in time. The case shows that franchisees must meet a high bar before a court will cut off a proposed new policy implemented by the franchisor in good faith.

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2016. All Rights Reserved.

Friday
Apr292016

Joint Employer Liability: Wins, Losses, Lessons; and Understanding Merger/Integration Clauses

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
gwintner@lewitthackman.com

April 2016

 

Franchise Lawyers

FRANCHISOR 101:
Wins, Losses & Lessons in Joint Employer Liability

As joint employer liability continues to develop, plaintiffs seeking deep pockets continue to claim, with some success, that franchisors are joint employers, responsible for actions of their franchisees' employees. In April, a jury found Domino's Pizza (DP) liable for $10.1 million for a delivery driver's car accident that caused a man's death.

In the accident a franchisee's employee drove in front of an oncoming truck. The truck swerved, crashing into a median to avoid the DP driver. The truck driver was left quadriplegic and later died. The jury found that the delivery driver caused the accident, and that DP controlled the franchisee's operation enough to be liable. DP's attorney argued that DP did not control hiring or firing of the franchisee's employees.

But the plaintiff's attorney focused on overall control by DP, noting that it extended even to particular conduct of delivery drivers, like requiring them not to use radar detectors or carry more than $20 cash. The attorney persuaded the jury that the franchise agreement's description of the franchisee as an "independent contractor" was just an effort by DP to avoid this kind of liability, and did not describe the actual relationship, in which the franchisee was actually DP's agent.

Click to read: Wiederhold v. Domino’s Pizza, 2-11-CA-001589

By contrast, when an employee of a landscape service franchise sued the franchisee and franchisor for discrimination, harassment, and retaliation, the court found that the franchisor was not her employer and could not be liable. The court explained that the franchisor, Mountain View Lawn Care, did not exert control over the plaintiff's employment, since the franchisor did not:

1. Have the ability to hire or fire the plaintiff;
2. Supervise or discipline the plaintiff;
3. Provide the equipment or uniform used by the plaintiff;
4. Possess employment records for the plaintiff;
5. Train the plaintiff or any of the franchisee's employees;
6. Employ anyone with similar duties to the plaintiff's;
7. Receive the sole benefit of the plaintiff's work;
8. Do anything to show that it intended to be the plaintiff's employer.

Click: Wright v. Mountain View Lawn Care, LLC

Juries are less predictable, as shown by the Domino's Pizza case, but a franchisor can improve its prospects of avoiding joint employer liability by following the factors outlined in Mountain View.

FRANCHISEE 101:
Understanding Merger/Integration Clauses

Before a final agreement is signed there are often oral discussions, negotiations, and representations. There may be written memorandums of understanding or letters of intent. But, when the final agreement has a "merger" or "integration" clause, in many states it is as if anything that came before never happened.

After various disputes between Chrysler Group and its distributor in Greece, the parties entered into a settlement agreement. The agreement said the distributor would now sell only Chrysler's "Lancia" branded vehicles. Before they signed the agreement, Chrysler represented to the distributor that it planned to expand the Lancia line over the next few years. When that expansion didn't happen, the distributor sued Chrysler for fraud.

The settlement agreement did not mention expansion of the Lancia line but did have a "merger/integration clause." That clause said the agreement superseded all other agreements between the parties. As a result, regardless of any representations allegedly made by Chrysler, the court denied the distributor's claim.

A merger clause may resemble the following:

Entire Understanding: This Agreement contains all of the terms and conditions agreed on by the parties with reference to its subject matter. This Agreement supersedes and replaces all prior agreements, arrangements, negotiations, representations and understandings among the parties, whether written or oral, concerning its subject matter.

An agreement with a clause like this will be the last, and only, word on the subject in those states that give force to these clauses. Before signing an agreement that contains such a clause, be certain that the agreement also contains every part of the final deal as you understand it.

Details: Lancia Jeep Hellas S.A. v. Chrysler Group Int'l LLC, Mich. Ct. App.

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2016. All Rights Reserved.

Tuesday
Mar292016

Protecting Interests in Preliminary Injunctions; & The Purposes and Limits of Non-Compete Clauses

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
gwintner@lewitthackman.com

 

March 2016

 

Franchise Lawyers

Tal Grinblat in Valley Lawyer

The ever-pervasive Happy Birthday to You - sung by waiters in corporate restaurants around the world to embarrassed celebrants and diners - may now reside in the public domain..."

Click to read: Music Publisher Caught in Birthday Suit, Agrees to Settle by Tal Grinblat and Nicholas Kanter

 

FRANCHISOR 101:
Protecting Interests in Preliminary Injunctions

 

A franchisor in a termination dispute with a franchisee may request a preliminary injunction to force the franchisee to immediately stop operating the franchised business and using the franchisor's trademarks and intellectual property. A court will grant a preliminary injunction when the party asking for it can show that it is likely to succeed on the claim and that, without an injunction, the party will suffer irreparable harm. Recently some franchisors have had difficulty obtaining preliminary injunctions. Courts have clarified when they will and will not grant injunctions in a franchise context.

In 7-Eleven, Inc. v. Sodhi, 7-Eleven issued termination notices to a franchisee because the net worth of five of his locations fell below amounts required by the franchise agreements. The franchisee disputed that he breached the franchise agreements, so he continued to operate despite receiving the notices. 7-Eleven sued the franchisee for trademark infringement and asked the court for a preliminary injunction.

The court found that several factors calling for an injunction were satisfied, including a likelihood that 7-Eleven would succeed in its claim. However, it also found that 7-Eleven did not prove exactly what irreparable harm it would suffer to its reputation or property from temporary continuation of the stores' operation. 7-Eleven submitted evidence of customer complaints on lack of cleanliness. But the court found those insufficient to show harm to reputation, in part because 7-Eleven received them before the franchisee's breach. The complaints did not prove the franchisee's continued operation was causing new harm to 7-Eleven's reputation that hadn't already occurred. The court declined the injunction.

In Intelligent Office System, LLC v. Virtualink Canada, Ltd., Intelligent Office System (IOS) entered into a Master License Agreement (MLA) with Virtualink Canada, Ltd. (Virtualink). The agreement granted Virtualink the exclusive right to license IOS's trademarks and business concept (for "virtual offices") to subfranchisees in Canada. In March 2013, IOS sent Virtualink a notice of defaults that Virtualink committed, including not meeting sales and opening goals and not providing reports and tax returns. IOS claimed Virtualink continued committing defaults, until IOS sent Virtualink a termination notice in October 2015. IOS filed suit in December 2015 and shortly after sought a preliminary injunction to shut Virtualink down.

The Colorado court noted that the purpose of a preliminary injunction is to maintain the positions of the parties until a trial could be held. So any preliminary injunction that would change the parties' positions would be disfavored and scrutinized carefully. The court reasoned that forcing Virtualink to stop the business it had run would change the parties' positions that existed in which Virtualink had been the "Master Licensee" for Canada. In declining to grant an injunction the court explained that IOS failed to show that it would be irreparably harmed without an injunction, since for years Virtualink had committed the defaults IOS claimed it wanted to stop, yet IOS allowed them to continue.

Both IOS and 7-Eleven show that a franchisor must act quickly and show urgency in response to franchisee defaults or courts may be unsympathetic when an injunction is requested. This can result in a franchisee receiving a notice of termination and yet continuing to operate the franchised business, possibly for years to come.

Click to read: 7-Eleven, Inc. v. Karamjeet Sodhi or Intelligent Office System, LLC v. Virtualink Canada, Ltd. 

FRANCHISEE 101:
Purposes and Limits of Non-Compete Clauses

Many franchise agreements have "non-compete clauses", which state that after termination or expiration of the franchise agreement, the ex-franchisee may not operate a business that is similar to or that would compete with the franchised business. These clauses apply for a stated time and cover a stated geography. In some jurisdictions, such as California, non-compete clauses are not enforceable. In other jurisdictions where these clauses can possibly be enforced, courts also decline to enforce them in some circumstances.

In AAMCO Transmissions, Inc. v. Romano, Robert and Linda Romano sold their AAMCO franchise in Florida and terminated their AAMCO franchise agreement. Then they opened a new transmission repair shop over 90 miles away from their old location. The Romanos' franchise agreement had a non-compete clause barring them, for two years, from opening a competing business within 10 miles of any AAMCO location. The Romanos' new location was only 1.4 miles from an AAMCO business. Despite this, a court refused to enforce the non-compete provision. The court ruled that the provision was too broad in its geographic scope, and limited enforcement to 10 miles from the franchisees' former location, and 10 miles from any other AAMCO location within the county in Florida where the franchise had been located.

In MEDIchair LP v. DME Medequip Inc., MEDIchair franchise businesses sold and leased medical equipment to be used at home. The MEDIchair franchisor also owned and operated similar businesses, but under the name "Motion Specialties." A MEDIchair franchisee in Ontario, Canada discovered it was competing with a nearby Motion Specialties store serving the same area. When the franchisee's franchise agreement ended, it de-identified its store as a MEDIchair franchise, and operated a similar business in the same location, with the same employees selling the same or similar products. MEDIchair then sued the franchisee to enforce the non-compete clause in the franchise agreement. That clause prohibited the franchisee from operating a competing business within 30 miles of the franchised location or any other MEDIchair franchise for 18 months after expiration of the agreement.

The Ontario court noted that, to be enforceable, a non-compete clause must serve a legitimate business interest of the franchisor - namely, to protect the franchise system. In this case, the evidence suggested the franchisor did not seek a replacement franchisee for the vacated location, since the territory was already served by its own Motion Specialties location. MEDIchair's actions showed that it had no interest in protecting the interests of its franchise system in Ontario. Therefore, the court refused to enforce the non-compete clause against the former franchisee in that territory.

AAMCO and MEDIchair show that even in jurisdictions where non-competes can be enforced, courts may narrowly construe the franchisor's legitimate business interests that may be protected by a non-compete clause. A court may find, as in AAMCO, that the non-compete only protects the franchisor's interests in the particular franchised location sold. Or, as in MEDIchair, a court may conclude that the franchisor has no business interest to protect - or, that the interest it seeks to protect is not "legitimate."

Read: AAMCO v. Robert V. Romano and Linda Romano, and MEDIchair LLP v. DME Medequip Inc.

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2016. All Rights Reserved.

Wednesday
Feb242016

Importance of Arbitration Clauses; and Reliance on Profit Projections

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
gwintner@lewitthackman.com

 

February 2016

 

Franchise Lawyers

Barry Kurtz, David Gurnick & Tal Grinblat at IFA

Barry Kurtz, David Gurnick and Tal Grinblat attended the International Franchise Association's Annual Convention in San Antonio this month. This is the 56th annual conference, which draws thousands of global business leaders, franchisors and suppliers.

 

Tal Grinblat Selected

For the third consecutive year, Tal Grinblat has been recognized as a U.S. Legal Eagle by Franchise Times Magazine. Legal Eagles are nominated by attorney clients and peers as the best in the industry.

 

FRANCHISOR 101:
The Importance of Arbitration Provisions

 

Though some of the more important terms may appear early in a franchise agreement, some key terms placed near the end - the portion of the agreement that is often called "boilerplate" - may determine who wins or loses a legal fight. A franchisor that has a preference to arbitrate disputes should pay close attention to the arbitration provisions.

Courts have held provisions requiring arbitration to be enforceable time and again. In Jacobson v. Snap-on Tools Co., a franchisee claimed that a provision in his franchise agreement compelling arbitration was unenforceable because the franchisee had not read it, saying it was "hidden", and the franchisor had not called special attention to it. The court found the arbitration provision, which looked no different than the rest of the agreement, was not hidden and the franchisor had no duty to particularly point out that provision to the franchisee. The franchisor was able to compel arbitration.

But not all arbitration provisions are equal. In Meadows v. Dickey's Barbecue Restaurants, Inc., two groups of plaintiffs sued their franchisor claiming fraud and franchise law violations. All the agreements signed by both groups had provisions requiring all "disputes" to be submitted to binding arbitration. Dickey's moved to compel arbitration. The franchisees claimed they should not be bound by the arbitration provisions because, in their opinions, the agreements weren't valid.

The court looked at the franchise agreements and found they were not all the same: for the first group, the definition of what had to be submitted to arbitration included disputes about validity of the agreement itself; but for the second group, "validity of the agreement" was not listed in the definition of "disputes." As a result of the discrepancy, while Dickey's had the right to compel arbitration with the first group, much more analysis and argument was needed to reach the same conclusion for the second group.

In summary: if you want arbitration, make sure you have an arbitration provision in your franchise agreement that is complete and well drafted.

Read the Motion to Dismiss or Compel Arbitration: Jacobson v. Snap-on Tools Company et al, or an Order Granting Defendant's Motion to Compel Arbitration: Meadows et al v. Dickey's Barbecue Restaurants Inc.

 

FRANCHISEE 101:
Relying on Franchisor’s Profit Projections

Most experienced franchisors know better than to make claims about profits franchisees can expect when those claims do not match the information in the franchisor's Franchise Disclosure Document. However, if a franchisor or its representative does make a profit claim, can you rely on it?

In Fantastic Sams Salons Corp. v. PSTEVO, LLC, a franchisee claimed that, before he signed a Fantastic Sams Franchise Agreement, he was given promising financial documents in a private meeting with a company vice president and regional director. According to the franchisee, the documents showed that the salon would be profitable after just three months of operation. When the salon was not, in fact, profitable after three months, the franchisee sued Fantastic Sams for fraudulent misrepresentation.

However, as many franchisors do, Fantastic Sams required the franchisee to sign a disclaimer as a pre-condition to signing the franchise agreement. In that disclaimer was a statement that "NO ORAL, WRITTEN OR VISUAL CLAIM OR REPRESENTATION WHICH STATED OR SUGGESTED ANY SALES, INCOME, OR PROFIT LEVELS WAS MADE TO ME, EXCEPT:" Though several blank lines followed the statement, the franchisee wrote the word "None". The court found this disclaimer defeated the franchisee's claim of fraudulent misrepresentation, and dismissed his claim. Another court recently dismissed a franchisee's fraud claim when the disclaimer was just a provision in the franchise agreement itself. Moxie Venture LLC et al v. UPS Store, Inc.

Had the Fantastic Sams franchisee described representations on the blank lines of the disclaimer, the franchisor may not have moved forward to sign a franchise agreement. For some franchisors, one purpose of the disclaimer is to screen out franchisees having potential to make the kinds of allegations described above. So what should a franchisee do if a franchisor makes profit claims, yet requires signing a disclaimer, or a franchise agreement with a disclaimer? In some systems, the answer is to choose between walking away from a deal that may involve misrepresentations, or going forward based on projections that are not supported, and without being able to rely on the representations provided.

Click to read: Fantastic Sams Salons Corp., v. Pstevo, LLC and Jeremy Baker or, Moxie Venture LLC v. The UPS Store, Inc.

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2016. All Rights Reserved.

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